Chuck Jaffe: ‘Someone needs to tell Jerome Powell that this is not a kill-at-all-costs mission.’ Cut interest rates now to prevent a full-blown banking crisis.

by | Mar 19, 2023 | Stock Market

“ A pause in rate hikes simply isn’t good enough. ”

We’re nearing the tipping point where the U.S. economy and banking system either back away from the edge and return to safety or fall off the cliff and into a full-blown banking crisis. The Federal Reserve could solve this in one step: Cut interest rates at its meeting this week.

Yet the odds of the Fed taking this step are slim.  While most forecasts now have the U.S. central bank holding off on a rate increase, a pause simply isn’t good enough. Cutting rates releases an economic pressure valve. However temporary this move would be, the respite is necessary for the health of the financial markets and the banking system.  Yes, the Fed wants to tighten the leash on inflation and, no, a rate cut will not help on that front, but someone needs to tell Fed Chair Jerome Powell that this is not a “kill-at-all-costs” mission, because none of us can afford for the stability of the banking system to be a price paid in the effort.Squeeze and bleed Most of the coverage so far of the collapse of Silicon Valley Bank
Silvergate Bank
and Signature Bank
— and the instability at First Republic Bank
and others – has focused on how these banks managed their way into troubles. It hasn’t looked hard at the squeeze these businesses faced. Here’s the issue that several experts tell me is being ignored, summed up by Bryce Doty, senior portfolio manager at Sit Investment Associates: “Most banks are insolvent right now.” That sounds horrible, but it is more about regulatory rules and interest rates than a …

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